Major USD Reversal Has Dollar Bears Asking Questions

U.S. Dollar Trading (USD) With early Europe taking EUR/USD for a test of 1.16 and USD/JPY falling under Y106 the market appeared to be on the edge of a major new leg of USD weakness. Fast forward 12 hours and we witnessed one of the biggest broadbased reversals in the USD this year. With little news flow almost every major experienced outside day reversals. In what could be a pivotal day for the market if we see an extension of USD strength today then potential tops in EU, GU and bottoms in UC and UJ could be marked on charts.

The Euro (EUR) the EUR/USD rally has been a key part of the broad USD selloff in the last few months. As the biggest pair in the FX markets a close below 1.14 this week would look very toppy for the pair and suggest the broad 1.05-1.15 range has held again. With US NFP on Friday the potential for a sharp move lower could have fundamental backing as well. The Sterling (GBP) weak economic data in the form of manufacturing PMI falling to 49.2 vs. 51 has be largely put down to businesses waiting for the UK election results before purchasing. The market pounced though and the overextended GBP/USD at 1.4760 was crushed down to 1.4540 and like the EUR/USD is potentially marking a short term top.

The Japanese Yen (JPY)the BOJ got a gift from the FX gods overnight with bank holidays the first 3 days of this week keeping volume low we saw Y107 taken out in Asian trade today in very low liquidity. Y105 has been seen as a major line in the sand for the BOJ/MOF and it looks safe for another day. Australian Dollar (AUD) was the weakest currency in the market as the central bank RBA cut rates to lowest on record 1.75% as inflation remained stubbornly low in the commodity powerhouse.

Stocks Indices(DAX) Sharp selling at the open saw the DAX Crash below 10000 and surprisingly the recovery of the USD/JPY did little to help but we did stabilize at 9950 for the rest of the day. US Stocks also came under heavy selling pressure with many traders pointing to weak Oil and spill over from the recent nasdaq losses hurting sentiment. Broader uptrends are still both intact for now and this week will be critical for the test of “sell in may” trading proverb.

Pairs to watch

EUR/USD needs to close above 1.15 to regain footing

AUD/NZD Bounce off 1.08 the low?

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Economic Data Ahead

US April ADP Jobs forecast 205K vs 200K previously (US NFP Preview)

US April Service PMI forecast 54.9 vs. 54.5 previously

AUD March Retail Sales forecast 0.3% m/m vs. 0.0% m/m previously

By Anthony Darvall (TonyD)